Snap: Advertiser Interest Is ‘Waning,’ Says Deutsche

By

Tiernan Ray

Sept. 11, 2017 9:53 a.m. ET

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Shares of social networking-cum-camera company Snap (SNAP) are down 6 cents at $15.28 after Deutsche Bank’s Lloyd Walmsley this morning cut his rating on the stock to Hold from Buy, and cut his price target to $17 from $20, writing that despite improvements in the company’s advertising technology, his chats with people in industry are decidedly “mixed,” as interesting is "waning."

Walmsley cut his revenue estimates for this year to $1.6 billion from $1.9 billion, and cut his estimate for next year to $2.9 billion to $3.2 billion.

Snap has made strides, he writes, in improving its advertising technology. But his conversations with people in the industry show “a reduced imperative for advertisers to experiment with Snap advertising,” especially as competitor Facebook (FB) has improved features of its Instagram program that compete with Snap’s Snapchat.

"Over the last few weeks we have spent a significant amount of time speaking to advertisers, API partners and content partners within the Snap / advertising ecosystem,” he writes. “But just as the company makes progress with its ad systems, the narrative in the ad community has become more challenging."

Snap has clearly made progress in its ad tech infrastructure, and we have heard some limited modestly positive feedback. But the positive feedback has been limited and mixed with less upbeat reports. Concerningly, we have noted less overall interest in Snap. A year ago there was some pressure with boards asking CEOs about Snap, and CEOs then asking CMOs to have a Snap strategy. With negative headlines around DAU growth and competition, plus Facebook directly selling Snap-like product on a better ad system where advertisers are already spending a lot of money and feel very comfortable, marketers are just not as interested in Snap. The exciting new platform buzz seems to have shifted to Amazon of late. This sentiment could absolutely change if DAU growth re-accelerated or big improvements in the ad systems drove compelling ROI. But we are getting late in the pitch count for this to help 2H17, in our view, putting numbers at risk near term.

Walmsley writes there may still be a payoff to improved advertising systems, but it’s going to take time:

We think Snap ad tech is improving and underappreciated by most investors and advertisers, but the longest running API partners are getting more comfortable now that they can measure on the platform and see some clients note positive ROIs on the platform. Over time, this should attract more ad dollars, but the second-wave API partners for Snap still have less confidence in ROIs than their initial counterparts, but budgets are still ramping from some clients on wave 2 API partners

Facebook shares drop almost 7% on Friday's disclosure of mishandling of user data by the consulting firm Cambridge Analytica, KLA-Tencor buys fellow chip equipment maker Orbotech, Deutsche Bank analysts are bullish on fiber optics name II-VI but negative on Arista Networks, GrubHub stock is getting pricey according to Stifel analyst John Egbert, Fitbit finds a new believer in Craig-Hallum's Alex Fuhrman, ex-chairman Paul Jacobs of Qualcomm is hoping analysts will vote in sympathy with him at the company's shareholder meeting on Friday, Dell topped server sales in Q4 and bumped aside Hewlett Packard Enterprise, Google's Diane Greene is mulling a big acquisition to boost the company's cloud services, Apple is moving forward with its own display technology called "micro LED," and Oracle is set to report results after the closing bell.

"While it's background noise for investors in the near-term, with the News Feed overhaul and other actions that Facebook has implemented over the past few months, its clear with more 'heat in
the kitchen from the Beltway' that further modest changes to their business model around advertising and news feeds/content could be in store over the next 12 to 18 months," analyst Daniel Ives wrote.

Snap: Advertiser Interest Is ‘Waning,’ Says Deutsche

Shares of social networking-cum-camera company Snap (SNAP) are down 6 cents at $15.

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